Gingrich, Asimov, and The Computer-Trading Monster!

Here’s a vital issue under discussion (at last) on both sides of the Atlantic. Governments, both rich and poor, urgently need two things: a way to calm speculation in the financial markets and also new ways to raise revenue. In late September 2011, the European Commission proposed a tax or fee on financial transactions. This appears to be part of the newly announced European Union plan, with Britain the sole dissenter.

“A levy of just 0.1 percent — or even just 0.05 percent — levied on each stock, bond, derivative or currency transaction would be aimed at financial institutions’ casino-style trading, which helped precipitate the economic crisis. Because these markets are so vast, the fee could raise hundreds of billions of dollars a year - from the sector of the economy that made towering profits while being directly responsible for our present depression, ” writes Philippe Doust-Blazey in the New York Times.

Read the article. But note that it does not mention the top reason for such a tax! That it might benefit real human investors by slowing finance and equity trading back down to the speed of human thought.

Would that necessarily be a good thing? The concocted rationalization you will hear, in opposition to this proposal, is called “market efficiency.” According to what’s become a bona fide cult, any process or innovation that allows ever-smaller increments of trade to happen ever-faster is “efficiency,” and that will automatically lead to better allocation of society’s capital, and thus a skyrocketing economy.

This is wrong in many ways, starting with the pure fact that the flourishing of fast-cybernetic trading has directly correlated with the steepest decline in the health of capital markets in a century.

But absolute refutation comes from a different direction. From Physics, biology and thermodynamics.

== Computers and markets emulate life ==

Living creatures thrive by finding a steep gradient of usable energy. Green plants utilize the fact that incoming sunlight is thermodynamically clean and much less entropic than the surrounding environment. (Greenhouse retention of Earth’s infrared radiation is thus intrinsically entropic.)

Some of this gradient is used by the plant to grow and reproduce, or else gets stored away, while some is lost as transaction cost.

Animals in turn consume plants for that stored useful energy, investing the time and effort to bite and chew and digest in order to benefit from some of the remaining gradient. Predators then pounce and bite and digest in the next stage. There are always losses with each transaction, hence the number of predators who can be supported at each scale gets smaller and smaller.

Along the way, each plant, herbivore and carnivore has parasites, intestinal worms and bacteria, etc., that grab some of that stored energy along the way. If they grab too much, the animal can’t get a steep enough or plentiful enough energy gradient and it dies.

Can you see it yet? Beyond a certain level, increasing the total number of transactions does not make living systems more efficient. It flattens all energy gradients and makes life unhealthy… even dead.